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Principles to guide reform of the Money System Separating the 3 Functions of Money in today’s SystemHe has separated out the 3 functions of money in setting out principles for each. In the same way he sees solutions being developed in each area separately, that have a combined effect, as they inter-relate. While traditional commodity money could serve all 3 functions, modern money credit money cannot without destabilising effects.

The exchange function of money entails short-term credit to cover the time between the delivery and the sale of goods or services. The finance function (investment and savings) requires long term credit.

The principle that should govern the issuing of money as credit for exchange is that this should represent goods or services that are in the market and in continuous demand (c.f. the “real bills doctrine” attributed to Adam Smith).

The principle for long-term credit for investment to renew or increase production capability is that it should be matched to savings, the sources of credit, a key principle for sound money. If more money is put into the economy but goods are not, then a currency is devalued and prices rise. (As R.Borsodi says in his 1989 book on inflation, “most present-day money is backed by loans that should never have been made – to monetise government loans and the securities of large corporations and to finance speculation”), This leads to inflation when the currency is enforced legal tender. Such loans do not support productive enterprise or the creation of real wealth in all its senses.

In designing a system (such as mutual credit clearning), and the implementation and management of it, there should enough controls to ensure the principle of reciprocity and freedom of reciprocal exchange is realised in practice – giving and getting, supply and demand, can come into balance, and participants feel and know this. This links to trust in the system and people running it.

This links to another key principle – and condition – of success, adequate scale and scope: for mutual credit clearing, getting a critical mass of goods and services, participants and supply chain members within the scheme, and winning the support of mainstream business.

These last two principles are derived from studies of failures.

Greco implies other principles for governing relationships in his recommended best practice. These can stand alongside the principle of reciprocity:

Collaborative rather than adversarial relationships in carrying out exchange and investments, for example the principles of shared risk and reward and of co-responsibility. For collaboration in organisations they need to be units of human scale (e.g. 150 or so people) for participation in policy decisions alongside hierarchically structured or self-managed teams for operations (c.f. the principles of sociocracy or dynamic or collaborative governance www.sociocracy.info ). Corporations and their ownership need to be constituted to represent in a balanced way the interests of all key stakeholders in these policy decisions. The technology of communications and information management enables small locally owned organisations to be globally networked.

He also states the necessity for competition to guard against the concentration of monopoly power.

He also advocates and demonstrates throughout the use of valid knowledge informing good design derived from the study of practice and experience, for both the system itself and also the implementation and establishment of it. Principles derived from this can reinforce the norm of reciprocity and at the same time help achieve the participation and support needed for scale and scope. He shows how to use the learning from this for further improvements and developments. He quotes key thinkers who know the aspects of the system they are talking or writing about, and describes case examples as well as historical developments. Specific principles are set out in Chapter 14 on how to make alternative exchange systems or currencies work and convenient to use, and to attract the people and the goods and services they supply to get the buy in needed to make them a core part of people’s economic activity and have the scale needed to make them sustainable in every way. See “alternative exchange systems” in the solutions section.

Greco does not state this as a principle as such, but as a key element of the way forward or solution: the separation of money and state. He draws an analogy between this and the separation of church and state (and the effects of not separating them, but having a collusion of political and financial or religious power). Just as the US bill of Rights precludes government from establishing any one religion or from forbidding any religion, so the government should be precluded from establishing any one currency as legal tender or legislating to support any particular banking cartel. This would prevent there being a monopoly of credit or central authority for issuing money and no forced acceptance or circulation of a currency. The allocation of money as credit would also be less centralised. This will leave buyers and sellers free to design, test and select, partly through market forces, efficient, cost-effective and trusted mechanisms for reciprocal exchange, investment or saving and an objectified measure of value, building on the rights of voluntary association and contract. R. Somers in his book The Scotch Banks and the System of Issue wrote in 1873 that the “tendency of a state or central form of issue is to autocratise banking. The effect of a plural issue is to popularise this powerful lever of both moral and material improvement.”

Greco uses these principles, derived from the analysis of problems with the current money system in conjunction with the positive innovations in the money system (such as electronic credit clearing) to suggest a way of reforming it and making it easier to live in a way that is more fulfilling economically and personally, and more socially equitable, cohesive and liberating, while, crucially, remaining environmentally sustainable.